Why have market returns been able to average even 3.5% over the past 14 years? Simple. Valuations have been pushed, once again, to some of the highest levels in history. Instead of terminating this 14-year period anywhere near historical norms, the ratio of market capitalization to GDP presently stands at 1.25, which is double its historical norm.

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In her first public speech on monetary policy, Janet Yellen made it clear that the Fed intends to pursue a more rules-based, less discretionary policy. This is good news. The bad news, however, is that Yellen focused only on employment and inflation. In that same speech, not a single word was said about attending to speculative risks or financial instability (which are inherent in Fed-induced, yield-seeking speculation). Without attending to that third leg, the Fed is resting the fate of the U.S. economy on a two-legged stool.